Gasoline is the lifeblood of transportation in America.

Personal vehicle consumption alone results in over 65 billion gallons of gasoline and diesel fuel guzzled each year, and that number is projected to increase by nearly 3 percent in the coming years.

Gas prices are like riding in a roller coaster; they're down a little one week, up the next, then they shoot upwards of 30 percent or more in a flash. To the average person, it probably seems as though there's little rhyme or reason to how gas prices are determined. How can we deal with the forces that impact the price of gas at the pump, and find out where our gas money actually goes?

Gasoline price increases usually occur when the world crude-oil market tightens, or lowers inventories. There are several opinions regarding why they would do something like, this ultimately, one can only surmise that it simply puts more money into their already deep pockets. Increased demand, such as in the summer months can sometimes outpace refinery capacity resulting in higher pricing. In the spring of each year, refineries typically perform regular maintenance activities, which can strain the gasoline market. By the end of May, refineries are usually back to full capacity but due to the 2005 hurricane season, this may not be possible in 2006.

Insatiable
Appetite for Fuel

As Americans, we seem to have an unquenchable thirst
for gasoline, and with the growing popularity in sport-utility
vehicles (SUVs) our need for fuel grows
even stronger. A simple look at the number of cars
on our roads and highways and you'll see that a
severe gas shortage would practically cripple the
country. According to a MEMA report, Americans
drive nearly 3 trillion miles per year; that's equal
to 14,000 round trips to the sun. Today, we drive
almost twice as much (1.5 trillion miles) as we
did 25 years ago. We must begin a more realistic
approach to incorporating the use of alternative
energy solutions such as Compressed
Natural Gas, Hydrogen and Electric Powered
Vehicles and BioDiesel.

Historical Gas Prices
(Adjusted for inflation)

Year

Price Per Gallon

1950

$1.91

1955

$1.85

1960

$1.79

1965

$1.68

1970

$1.59

1975

$1.80

1980

$2.59

1985

$1.90

1990

$1.51

1995

$1.28

2001

$1.66

2002

$1.31

2003

$1.52

2004

$1.79

2005

$2.28

2006 (so far)

$2.68

Source: U.S. DOE

According to the Department of Energy, the United States consumes an average of 20 million barrels of oil per day (bbl/d) with about 45 percent refined into gasoline. The remainder is converted to distillate fuel oil, jet fuel, residual fuel and other oils. A single (55 gallon) barrel of oil can be refined into about 42 gallons (159 L), which yields approximately 20 gallons (75 L) of gasoline. Based on this, we can assume that around 178 million gallons of gasoline is consumed in the US every day.

Seasonal Demands

Summertime usually means a higher demand for gasoline, lots of people go on vacation and Americans do enjoy a drive in the country. National holidays like Memorial Day and the Fourth of July result in logjams of tourist traffic during the summer months, which translates into a high demand for fuel and that means higher gasoline prices. Strangely enough, when gas prices soared 31 cents in April and early May of 2001, a gallon of gas rose to more than $1.70, prices actually declined during the summer months of 2001.
The price of a gallon of gas decreased from the high in 2001 to a lower price in 2002. Gasoline prices in 2003 typically rose during the summer months as you might expect, and then again in 2004.

Gas prices continued to rise past the end of the 2004 summer travel season due to several reasons, including hurricanes, and an increase in the price of crude oil. In 2005, an increase in the price of crude oil, and Hurricane Katrina pushed summer prices to over $3 per gallon. The winter months of 2005 saw a lower price for a gallon of gas, but now the numbers are rising once again. The average price for regular, unleaded gas is currently hovering around $2.70 per gallon with expectations that it will rise even more this summer (April 2006).

Gulf Coast refineries are still in the recovery phase from last years Hurricane season, just in time of the next round in 2006. One estimate is that a gallon of gas could reach $5 this summer in a worst case scenario. On the brighter side, some people in England are reportedly, currently paying in excess of $6 a gallon.